4 Ways You Can Stop Getting Sucked Into A Debt Cycle

It is very easy for Americans to get sucked into a debt cycle. After all, our economy is 70% reliant on consumer spending. That means everything around you will be focused on making you spend. The temptation to spend your money can sometimes be too great. Sometimes, it is too much that it makes us spend more than what we can afford. This is where debt starts to enter the picture.

Our society has made credit very accessible – which is proving to be our downfall. We keep on using credit and sometimes, we use too much of it that it is already difficult to pay it back. According to reports, consumer credit rose by 5.1% during the first quarter of 2018. The total debt amount of Americans are already $3.8 trillion and it is expected to reach the $4 trillion mark by the end of this year.

Do not get us wrong. We are not against debt. In fact, we strongly believe that it can be an effective tool in improving our respective financial positions. You may be thinking – if it is really possible to use debt that way, why does it end up making our lives so miserable?

The problem lies in the way we decide to use debt. That is what causes our downfall. We make irresponsible debt payments. We borrow too much money. There are also those who get addicted to debt. After paying off one, they are quick to get more debt. Sometimes, these are done without enough planning so it ends up becoming a huge debt problem. Soon, you will find yourself sucked into a debt cycle.

But how does one get into a debt cycle? How will you know if you are already stuck in one?

You should consider yourself stuck in this type of cycle if you have a habit of borrowing continuously – leading you into more debt. It is when you are living a life that is more expensive than what your income can cover, then you are stuck in debt. If you are using debt to pay for another debt and it is only increasing your liabilities instead of improving it, then you have a debt crisis in your hands.

The thing about being in a debt cycle is that it does not happen overnight. Most of the time, it is something that piled up and accumulated over time. If you want to survive, you are forced to take on more debt. Soon, the increasing cost will tighten your budget so much that it will make it hard to recover.

While this type of predicament is hard to get out of, you have to know that it is not impossible. There are actually effective strategies that you can use to help get out of this cycle.

4 strategies to avoid debt cycle

If you are serious about wanting to get out of a debt cycle, you need to know that there are sacrifices that you need to make. Getting out of debt requires determination, discipline, and a lot of self-control. If you are already sucked into this cycle, that means your debt situation is already bad. You need to consider using these strategies to help put your debt under control.

Live below your means

In the past, experts say that you should live within your means. Apparently, that is no longer enough – especially if you are trying to get out of debt. You need to live below your means. When you live within your means, it is more likely that you will end up living from paycheck to paycheck. But if you strive to spend below your income, you will have extra left over after all the priority expenses are met. This extra money can be used to improve your financial position. You can use it to increase your saving, invest or pay off debt.

Avoid the maximum credit

This is not just for credit cards. Usually, when you are applying for a loan, you will be given the maximum credit amount that you can borrow. If you want to avoid going into a debt cycle, you need to make sure you do not reach that maximum amount. If you were approved of $500,000 on your mortgage, borrow much less than that. Buy a home that is only $400,000. Try not to stretch your credit payments too much so your finances have room to breathe. Of course, we do not have to tell you to avoid maximizing your credit card limit. The high-interest rate will really make it hard for you to pay it off completely. Not only that, the high credit utilization will ruin your credit score.

Refrain from adding to your credit card balance

While you are trying to get out of the debt cycle, avoid using your credit cards first. Adding to your credit card debt is usually not a good idea. It can be easy to get carried away when you shop with them. Not only that, these cards are notorious for their high-interest rates. If you plan to use it, make sure you keep it at an amount that you can pay in full when the billing statement comes.

Have enough in your emergency fund

Finally, you have to make sure you have enough saved in your emergency fund. If you did not know, there are people who managed to keep themselves from being irresponsible with debt. However, they got into a debt cycle because they did not have an emergency fund. When someone got sick or if you were not able to work, you will probably be forced to use credit just so you can buy the things that you need to survive. If you only had enough emergency funds, you could use it to get over the temporary financial fix that you have.

Tips to get out of a debt cycle

Getting out of a debt cycle is not impossible but will probably be one of the most challenging things that you will have to do. Starting to solve it is hard. Maintaining your payments is also difficult. Keeping yourself from adding more debt is also going to be a pain. This is why you need to have a concrete plan to solve your debt situation. Unfortunately, 1 out of 4 Americans does not have a debt payment plan. With something as difficult as getting out of a debt cycle, you will never succeed unless you have a plan in place.

Here are some tips that will help you get out of a tough debt cycle.

Admit that you have landed yourself in a debt pit. With that admission comes a clearer image of the problem. Knowing the problem will help you find the right solution to it.

Get to know your finances. This will help you with two things. First, it will help you identify the problem. Second, it will help you understand your financial capabilities – specifically in paying off the debt. It will make things easier when you try to come up with a plan to get out of a debt cycle.

Come up with a spending plan. To be more specific, draft a frugal spending plan. You need all the extra money that you can to pay off your debts.

Hide the temptation to borrow money. This usually means your credit cards. If you have a couple, hide the cards so you are not tempted to use it for purchases.

Try to earn more. The higher your income, the more money you can have to pay off your credit obligations. The higher the payments, the faster you can get out of debt.